This week saw a major shake up of the European travel industry. Germany’s TUI AG unveiled the tie-up of its tourism unit with the British company First Choice and declared the creation of…
This week saw a major shake up of the European travel industry. Germany’s TUI AG unveiled the tie-up of its tourism unit with the British company First Choice and declared the creation of Europe’s biggest travel firm – TUI Travel plc.
Created in the face of new competition from merging rivals – notably the merger of Thomas Cook and MyTravel, the merger of TUI AG and First Choice indicates a profound shift in the market with the Internet serving to fuel increasing competition. The travel industry has had a torrid few years, with an oversupply of package holidays exacerbated by more people planning their own trips using budget airlines and the Internet.
As the new TUI Travel CEO designate Peter Long said at a recent press conference, “the definition of the market has changed […] Travelport, Travelocity, Expedia are the new competition.”
Long said the aim was to create a “formidable global force” in the travel industry to better tackle the “new competitive forces” provided by low cost carriers and online intermediaries for growing numbers of independent travellers. The market has fundamentally changed and will continue to change, he added.
The January merger of MyTravel and Thomas Cook formed the UK’s largest travel company – Thomas Cook Group plc. The market has shrunk from 4 major players to just 2. TUI Travel will have 27 million customers in 20 source markets, potentially creating one of the most profitable travel groups in the world. What impact will yet another major merger have on the industry?
Online is a key element of TUI Travel’s plans to sweat €100m-worth of annual synergies through the combination of TUI AG’s tourism division and First Choice Holidays plc. “The more business we can get online, the more we can drive down our cost of acquisition,” Long said.
Cost benefits of at least £100 million are expected to be delivered within three years. A selection of package holidays, flights, niche businesses and a significant bed and flight bank to be accessed via the internet. The new group will “maximise internet sales and content” and introduce flexible structures to increase cost competitiveness. Will this dictate the trend for other traditional brick and mortar agencies to follow? How will they compete?
Such dramatic strategic change begs many questions namely – how do you get the right balance to future proof your travel organisation and ensure long term success? What is the optimal mix of scale and specialisation to drive business forward?
Travel companies are left with a choice – go large and generic, thus widening the net of potential customers and benefiting from economies of scale. Or go specialist and niche, where the margins are higher and you can focus your efforts more effectively. TUI Travel is aiming to combine their talents to achieve both. Will it succeed in fulfilling the rapidly changing needs of the consumer? Or will the sheer size of the organisation hinder choice and flexibility?
Then there is the issue of working with such behemoths – as a travel supplier, will you benefit from the economies of scale and extensive distribution networks offered by the newly formed giants Travelport-Worldspan, MyTravel-Thomas Cook, TUI-First Choice? Or should you be wary of the loss of brand and distribution control that could result, if the balance of power does not tip in your favour?
First Choice, TUI and Travelzest will be leading the debate on ‘Scale v’s Specialization’ at the European Travel Distribution Summit in London, 23-24 May. The event sees Dermot Blastland, Managing Director, Mainstream Business, First Choice and TUI AG share their views on what these changes mean for you, and debate how to create the optimal mix of scale and specialisation to drive your business forward. They will be joined by Chris Mottishead, CEO, Travelzest, whose group’s intention is to serve the dynamic needs of the market via linking consumers to online distribution services.
TravelDailyNews International is the Media Partner of the event.
For more information about this session, and to see a full agenda for EyeforTravel’s Travel Distribution Summit go to www.eyefortravel.com/tds2007/conference/agenda.shtml.com.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
